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When we first heard rumors last week that Microsoft was planning to offer a cheap Xbox 360 and Kinect bundle to customers who committed to two years of a new monthly online service, we thought it had the potential to revolutionize the way game consoles are sold and positioned as full-service living room entertainment centers. Now that Microsoft has confirmed the details of its subsidy plan, however, we can't help but see it as a bad deal and a missed opportunity.

Despite initial rumors that those paying $15 per month and committing to two years of online service would get "possibly some additional streaming content from cable providers or sports package providers," it turns out that the service is the exact same Xbox Live Gold plan that you can buy à la carte for $60/year (or less, if you shop for deals online). So while those who commit get to pay $200 less for the Xbox 360 and Kinect hardware up front, those savings will end up going towards at least $240 more in monthly payments for what amounts to the same exact online service, over two years.

True, the $40 or so extra you end up paying over the long haul isn't as bad as that offered by dicey rent-to-own outlets, but you still end up paying more later for the benefit of paying less now. That might be useful if you just got your first job and don't want to wait to scrape together the full up-front cost, but if you have the money to spare, you're probably better off shelling out less cash sooner rather than more cash later.

It's a shame, because Microsoft had a real opportunity here to use heavily subsidized hardware as a way to lock players into a truly higher tier of online service. These customers are agreeing to pay three times as much as normal for that online service, after all, so it seems like Microsoft would want to offer them some incentive to keep paying that fee over the long term, to make back that initial $200 hardware subsidy.

Sony's PlayStation Plus is one obvious model, with its regular offerings of free and reduced-price game downloads and full-game trials, but some sort of integrated premium video package would also be a good way for Microsoft to add value. A certain subset of customers would be eager to continue paying extra for the improved service in this situation, and with the two-year commitment they would be less likely to transition to a competing system a few months down the line as well. On the other hand, Microsoft may simply be counting on customers to forget about that $15 fee being billed to their credit card every month, letting the company rake in larger-than-normal Xbox Live fees for years into the future without having to improve the service.

Microsoft is currently offering this subsidy deal at its 26 Microsoft Store locations, and the offer page notes that the offer may terminate at any time, suggesting that this "deal" is more of a tentative test of the new sales model rather than a major marketing push. Still, the company probably needs to think a bit more expansively if its going to convince a large number of people to buy game consoles in the same way they buy cell phones.

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Kyle Orland
Kyle is the Senior Gaming Editor at Ars Technica, specializing in video game hardware and software. He has journalism and computer science degrees from University of Maryland. He is based in the Washington, DC area. Emailkyle.orland@arstechnica.com//Twitter@KyleOrl

Why now? I could see this being a good way to accompany the launch of new hardware like everyone is used to with cellphones, but a console that is 7 years old? It's not a stretch to say that they will come out with a new xbox in the next year or so (some would even say it's overdue). Why would anybody chose to lock themselves into something at the end of its lifecycle?

this is the same way that mobile carriers work. you pay more per month then you would on "non-contract" so you can get the subsidized phone. but you end up paying more for the phone then you would if you paid full price. It is like paying interest on the device for them not charging you full price up front.

Any company that could do this, would. The goal of any company is to make money.

I've not been supportive of the XBLG as a paid service - and I don't own a '360 - so this is clearly not some form of fanboyerism, but this is kind of a no-brainer for MS. It's a targeted marketing strategy, and I'd be shocked if it did not work out for them. For whatever reason, paying for XBL is not a turn-off for people who buy '360s, so why not capitalize and practically give the machine away to get college kids hooked?

You missed that this deal also includes an extra year of warranty (2 years instead of 1 year).

considering the latest model 360 is way less likely to break than the older models, it isn't really that much of a plus. Yes I agree it is better, and will likely save a few people who end up with a broken xbox, but by this generation, they pretty much have the devices designed properly where they don't die on you in 2 years unless maybe you keep them stuffed somewhere that they can't get good cooling.

All in all, this is a crappy deal as it stands. You are much better off getting a 360 with the 250GB hard drive, plus kinect, and some games for $300, and buying 2 years of xbl from a place like newegg, where it will boil down to $4/month, and no lock in contract. Versus saving 200 bucks up front but getting no games, no hard drive, and being locked in.

I see that as being $40 more over two years, not $240 more. I mean, I guess if you write off the initial discount you can get to $240, but that doesn't seem right.

And for many people on limited incomes, paying a net $1.67/month premium to get the console now rather than after saving for two years is probably worth it. Seems like a fine and reasonable deal to me, though of course if you've got the disposable income to just go spend $420, you might as well save that $40.

You missed that this deal also includes an extra year of warranty (2 years instead of 1 year).

considering the latest model 360 is way less likely to break than the older models, it isn't really that much of a plus. Yes I agree it is better, and will likely save a few people who end up with a broken xbox, but by this generation, they pretty much have the devices designed properly where they don't die on you in 2 years unless maybe you keep them stuffed somewhere that they can't get good cooling.

All in all, this is a crappy deal as it stands. You are much better off getting a 360 with the 250GB hard drive, plus kinect, and some games for $300, and buying 2 years of xbl from a place like newegg, where it will boil down to $4/month, and no lock in contract. Versus saving 200 bucks up front but getting no games, no hard drive, and being locked in.

The XBox with Kinect and a hard drive is $400, not $300. Though deals can frequently be found on them.

I'd never do a credit deal like this. But I realize that some people would. I don't fault Microsoft for going after that crowd.

I see that as being $40 more over two years, not $240 more. I mean, I guess if you write off the initial discount you can get to $240, but that doesn't seem right.

And for many people on limited incomes, paying a net $1.67/month premium to get the console now rather than after saving for two years is probably worth it. Seems like a fine and reasonable deal to me, though of course if you've got the disposable income to just go spend $420, you might as well save that $40.

If you read the sentence in full, you'll notice I said it's $200 LESS for the console and $240 MORE for the Xbox Live service. It adds up to the same thing. Sorry if the wording was confusing.

Ok, so an upfront cost of $99.00. And then $15.00 * 24 = $360.00. You get XBLG service which is a value of $120.00 over that two year period. So that means that you're giving them an "extra" $240.00 over those two years. $240.00 +$99.00 = $349.00. NewEgg has a Kinnect + XBox 360 4GB for $300.00.

So Microsoft is offering the customer a financing option that cost $49.00.

And you're misprepresenting this as paying $240.00 more for essentially the same service. You're missing the point entirely Kyle. Think of it more like a lay-a-way program where you get to take it home immediately.

And this isn't like the mobile carriers - you don't have to keep paying the $15.00 /mo after the end of the intial 24 months.

Of all the things to complain about MS's marketing and business plans - this doesn't seem to be a fitting place.

So it's ~ $420 to buy the hardware outright and 2 years of XBL gold. $460 gets you the same thing, but with 1/3rd of the upfront costs.

How exactly is this a "bad deal" for consumers? It lowers the bar for entry into the ecosystem massively, and is an ~8% premium on a 2-year consumer electronics + online service subsidy really that outrageous? Shifting the cost from low-margin hardware to high-margin service makes financial sense for MS and helps get people attached to the service.

Sure, just because it's not a "bad deal" doesn't mean it's the best financial deal for the consumer either, but there are so many more situations out there than "my first job" that this would appeal to, and not just dumb people making stupid financial decisions. Stunning lack of thought put into this crap article by the author.

I see that as being $40 more over two years, not $240 more. I mean, I guess if you write off the initial discount you can get to $240, but that doesn't seem right.

And for many people on limited incomes, paying a net $1.67/month premium to get the console now rather than after saving for two years is probably worth it. Seems like a fine and reasonable deal to me, though of course if you've got the disposable income to just go spend $420, you might as well save that $40.

If you read the sentence in full, you'll notice I said it's $200 LESS for the console and $240 MORE for the Xbox Live service. It adds up to the same thing. Sorry if the wording was confusing.

I ended up rewording this section a bit to make it clearer exactly what I was saying. Sorry for any initial confusion.

And for many people on limited incomes, paying a net $1.67/month premium to get the console now rather than after saving for two years is probably worth it. Seems like a fine and reasonable deal to me, though of course if you've got the disposable income to just go spend $420, you might as well save that $40.

It works out at 18% interest (almost exactly, in fact, seems that's what Microsoft Finance's rate must be ) over term with the standard pricing of bundle and $5 a month for XBL Gold. Dunno about you, but none of my credit cards are even that high.

Of course if money is really that much of a limitation, there are much better options. 4GB console off craigslist is $100 or so, $150 from gamestop and regularly go on sale new at this price. Basically if you just need a machine to play all those expensive games, the $299 bundle is not the economic option. I thought this was utter brilliance when there was the hint at additional services (it gets a bit fuzzy on what services are worth to different people, working in Microsoft's favour), this is just plain stupid though.

Microsoft, introduce XBL Platinum. Make it $15 a month and a requirement for a subsidized xbox, available to everyone else on demand (and some idiot will always pay it). Then have a $0 upfront Xbox on Black Friday. Then enjoy your dominance of consoles until the next generation.

The argument that extra interest is to be expected pretends that the company gains nothing from 2 year lock-in. Lock-in is valuable. As a consumer you should expect to get something for it, not pay extra.

Your best bet is to walk into a game store and buy a used console. And buy the service on a month to month basis (or at least 3 month) if you can. Because it's likely to change over the next two years and you may love the changes, but probably you'll move in the direction of hating the changes.

I had a fleeting hope that the subsidized plan might include content that would make some or all of my cable TV bill redundant. But it appears that's not the case.

A quick check of the Xbox LIVE entertainment offerings suggests that I could use the Xbox to access subscriptions to Xfinity, HBO, Netflix, Hulu and so on ... but I'd have to pay each of those providers, too. The XBLG subscription appears to include something called Crackle at no extra charge, but I didn't see much content there that I was interested in.

If Xbox offered some sort of built-in DVR functionality, the $15 to MS would have replaced the $15 I pay Comcast monthly for their less-than-stellar Motorola DVR box. But it doesn't. So as a non-gamer, I can't really see any value in this deal.

I forgot to mention, this is probably also going to be used to keep the prices for XBoxes higher. You can't expect it to go on sale with terms like this. I mean, "you're already getting an amazing deal!"

Not sure why you're so determined to hate Microsoft for offering this to customers. An extra $40 for another year of warranty and 2 years of monthly financing? I don't really see what's so awful about that. You probably gladly pay for an even worse deal through your wireless provider today. If you're going to crusade against all the pay-a-little-more-over-time deals out in the market these days that customers seem to like then you there are far more offensive targets to start with.

How is this not a great deal for those without at least 300.00 - 400.00 dollars upfront? Its a horrible deal for MS and those financing this. Almost less than 10 percent on a 400.00 dollar item is unheard of for an almost "no credit, bad credit deal"....unless you have great credit and have a CC to purchase on. Have a CC with 8 percent .....then purchase on that. You don't? Then build some with this. I mean 40 dollars to build credit over 2 years is a LOT less than what others do to build their credit.

Now the approval process is spotty at best now (lacking full details)...but if I were under writing these loans (because MS is GOING to get paid no matter what)....I wouldn't do it for a mere 10 percent and that's the gross total...who knows what percentage is finally given to the agency for backing these.

I say as far as financing any game system in the MARKET today...this is by far the best deal going (excluding approval details)...end of story. Heck I would even go out on a limb and say besides Credit Cards...I don't think this can be beaten (as of today).

So I think the Ars editor might have to retract "bad deal for consumers". Looks to be currently the best deal in the market of financing...and that's the only thing you can compare it to. It's not in the same market as buying outright. Thus...why we have financing markets!

And this isn't like the mobile carriers - you don't have to keep paying the $15.00 /mo after the end of the intial 24 months.

The difference with cell phones is that $15/month actually gets you a data plan. here you're paying extra for the exact same online service.

No you're not paying the extra for the exact same service. You're repaying the credit that Microsoft is giving you in order to get you hooked on the service.

MS is giving the customer financing for 2 years and is making a little extra off of it.

You're making it sound like if they don't give you the Xbox + Kinnect for $99.00 and charge only $60.00 a year for then it's a ripoff. You come off as having an over-developed sense of entitlement in this case.

The comparison I find here is that of wireless cellphones, but in a more insulting and absurd way.

If I want an iPhone, chances are I will NEED wireless service because thats the whole point of having a cellphone, so I'm willing to sign a contract to get the phone cheaper because I'm going to be paying the wireless carrier anyway. That's a 3rd party service who has agreed to knock the cost of my phone down because I'm paying them 10x more over the next 2 years.

But with the Xbox, I'm not paying a 3rd party to knock the cost of the box down, I'm paying Microsoft, and I'm paying them in some cases for things I already have to pay someone else for, like Hulu and Netflix (both are disabled without Live Gold). I'm also paying to be able to open the apps for Facebook and Twitter, which is rather insulting and I can't think of any other device that is setup this way. Yes, I'm also paying for online gaming, and that's a valid point, but if that were the only thing Live did I suspect even fewer people would pay for it, and MS knows this.

My point is this "service" they're metering out already feels arbitrary and artificially imposed, and to knock the price of the box down if I pay even MORE for it? Piling on the rage, i'm afraid.

And this isn't like the mobile carriers - you don't have to keep paying the $15.00 /mo after the end of the intial 24 months.

The difference with cell phones is that $15/month actually gets you a data plan. here you're paying extra for the exact same online service.

No, it's not - the *monthly* cost of Live is $15. At the end of both contracts, you're free to take your hardware and pursue cheaper options. If someone is so short on cash that they can only afford to buy at $99, they're likely paying month-to-month anyway.

but you still end up paying more later for the benefit of paying less now. That might be useful if you just got your first job and don't want to wait to scrape together the full up-front cost, but if you have the money to spare, you're probably better off shelling out less cash sooner rather than more cash later.

The first part is a pretty accurate description of every leasing, contract subsidyand loan model out there. So I do not see the problem? Seems pretty fair to me.

You do not have money to buy the box immediately so you pay 40$ interest or

99 + 15 * 24 = 460 / 420 = 1.095238 i.e. 9.5% interest over two years or more or less 5% for one year.

That is under the normal cost of capital and sounds like a pretty fair markup.

And yes for most people out there buying it outright would be a better solution, but again similar things hold true for more or less all rent/lease/loan models.

How is this not a great deal for those without at least 300.00 - 400.00 dollars upfront? Its a horrible deal for MS and those financing this.

299 - 99 = 200 that is being financed.

$200 at $10 a month (difference between $15 a month and $5 a month) over 24 months gives an implied interest rate of 18.157%. Although I don't know when you pay the first month of xbl gold, if it's straight up then the implied rate is 19.86%.

If they sell 10m consoles this way they stand to make about $363 million in interest a year for two years.

What a stupid trolling article. It may not be the absolute BEST deal financially, but it's very far from a bad deal.

Ars seems to be bi-polar these days. There are flashes of excellence followed by crapping all over the floor. I'm not expecting every article to be a home run, but stuff like this is just unacceptable.

It's interesting to me how many articles about this have "errors" or creative writing to make this deal look worse than it is.

The Verge currently breaks it out like so:"Overall, this bundle will cost $458.76 over the course of two years (before taxes), as compared to a $299 bundle bought outright, plus two years at $59.99 per year for Xbox Live Gold"

Crave:"The software giant today announced that customers can now buy the Xbox 360 4GB console with Kinect for $99. However, in order to get the $100 savings, they'll need to sign up for a two-year Xbox Live Gold membership, costing $14.99 per month."

And this isn't like the mobile carriers - you don't have to keep paying the $15.00 /mo after the end of the intial 24 months.

The difference with cell phones is that $15/month actually gets you a data plan. here you're paying extra for the exact same online service.

You aren't paying that much extra vs paying every month anyway. So comparing it to the annual plans isn't exactly apples to apples.

I don't get why people are surprised by the fact that a plan like this costs more money over time. People do the exact same thing with cable modems if you think about it. They pay up to $10 a month forever on something they could buy for $80 at Amazon.

Somethings people just don't have the up front money.

I guess my problem with this piece is that it almost acts like this exact same situation doesn't exist for a lot of other electronic goods.

Actually all of it is. When the write off happens they do it even for the down payment as lost (that goes to MS in which is a total separate risk deal...that they have to cover for still). The value is actually financed. So the finance company owns a valued Xbox at 300.00 + the xbox live service *at the time of sale*. (warranties are never covered in value and usually end up in separate deals).

So the risk is on a 390.00ish+ item(s). That's the assumed risk and what any Finance company will under write for.. Thus why I said about and even perhaps less than 10 percent.

Microsoft is in charge of paying the finance company the 99 right away...but the assumed risk is for the 400.00 or so.

So for the assumed risk...just in comparison...is a very good deal (half the rate of many rent to own places...and that's on the cheap side at 18.0 percent of rent to own markets....and they don't give you xbox live.

FYI folks...the warranty is given away by MS as part of the deal. No under writer will do it unless the company will back it up. Thus why rent to own places buy extended warranties for their products through a 3rd party.

And for many people on limited incomes, paying a net $1.67/month premium to get the console now rather than after saving for two years is probably worth it. Seems like a fine and reasonable deal to me, though of course if you've got the disposable income to just go spend $420, you might as well save that $40.

It works out at 18% interest (almost exactly, in fact, seems that's what Microsoft Finance's rate must be ) over term with the standard pricing of bundle and $5 a month for XBL Gold. Dunno about you, but none of my credit cards are even that high.